Viewing Asian FX as a single bloc is a mistake. Markets are driven by distinct, country-specific events, such as MSCI reclassification concerns in Indonesia, equity outflows in India, and the central bank's stance on an overvalued currency in Thailand.
Long-term strategic investment plans for emerging markets, however well-researched, can be completely derailed by short-term, headline-driven, technical market volatility, forcing a re-evaluation of the core narrative.
In emerging markets with high real yields (like EMEA and LATAM), central banks are responding to rapid currency appreciation by leaning towards monetary policy easing, such as rate cuts. This is seen as a more effective and tradable reaction than direct FX market intervention.
Analysis of a proprietary EM FX risk index shows that when an "overbought" signal appears to fail, it's not wrong about the market's condition. Instead, extreme readings predict a delayed correction, typically by about three weeks, as strong positive momentum takes longer to reverse.
While regions like LATAM and EMEA are still in a disinflationary phase, Asia's negative inflation surprises have ended. It's now experiencing small upside surprises, suggesting its monetary policy will diverge, with central banks remaining on hold, contrary to easing trends elsewhere.
The narrative of a coordinated "Plaza 2.0" style agreement to weaken the US dollar is likely flawed. The US chose to secure investment commitments from countries like Japan and Korea in recent trade deals, rather than pushing for currency appreciation, indicating its true policy priority.